Thursday, January 8, 2009

Part II - Rs 250 billion as royalty from 10,000 MW

December 27, 2008

Dear Shankarjee

There could be no disagreement in being always on the look out “for the opportunities where by Nepal can develop hydro not only for the domestic use but also for exports.” But the bottom-line has to be Nepal’s benefit. Contrary to this many a myths have been spread, especially with regard to water resource sector. These days I am busying myself in my endeavor to dispel these myths. Following are the principal ones.

1. Nepal to earn Rs 250 billion in royalty from 10,000 MW:When total sales earning of 10,000 MW, at 50% plant factor, at the bulk rate of US 8.65¢ amounts to about Rs 250 billion, there is no way Nepal can receive the same amount in royalties. No expert worth the salt will ever be able to prove this.

2. 25% of Nepal’s balance of payment deficit with India can be mitigated by west seti project aloneMy analysis, which was published by TKP on Paush 25 last year, shows that is untrue. The way the financing of this project is currently structured, this project will be able to mitigate only 0.45% of Nepal’s balance of payment deficit with India for fiscal year 2006/7.

3. Develop hydropower for domestic consumption is a mustI fully agree with you on this and would venture to say that we should target to increase current per capita consumption of less than 70 kWh to 10,000 kWh in order for Nepal to be counted amongst developed countries where the number is at 20,000 kWh level. Being an economist of repute you will agree with me that the multiplier effect on economy of the increased consumption of electricity will help metamorphose Nepal’s economy. I call it forward linkaged benefit of use of electricity. The target being employment generation through industrialization (including agro processing) as well as through increased return from agriculture by ensuring multiple cropping and planting high value cash crop including herbs (with the help of irrigation) and by ensuring that the agro produce fetch high value (by storing the produce in cold storage, silos to await proper price), eliminating dependency on fossil fuel (which will also reduce trade deficit as well as balance of payment deficit) by electrifying most of the transportation), etc.

4. Hydropower for exportBesides, the point I have noted above (# 2), Nepal becoming rich by exporting electricity is another myth that cannot be substantiated. If you have time I encourage you to peruse my blog (www.ratnasansar.blogspot.com/) for further information. However, I am not against export per se. I am against exporting electricity at dirt cheap rate (exporting peak-in electricity from west seti for less than US 5 ¢) while Nepal pays double of this to import lower quality electricity from India. The best will be for an agency like NEA to buy all energy from this project at this rate, use as much as is possible domestically – by the time this project will be commissioned the Seti-Mahakali region itself will be able to consume around 200 MW which will increase each year (to reap forward linkaged benefits) and export the rest at a commercially competitive rate.

I feel we should have more of such forums, even electronic, so that we are able to decide what is actually good for this country and what isn’t.

Many thanks for further explanation and suggestions. As I mentioned in my earlier email, this was my preliminary observation. I will go through the assumptions and actual numbers as mentioned in the proposals applied to NEA and carry out further analysis. However, having worked as a development practitioner for a long period of time (including in Laos and Bhutan for a while), I always look for the opportunities where by Nepal can develop hydro not only for the domestic use but also for exports.